CALIFORNIA ATTORNEY'S FEES

Deeds Of Trust, Fee Clause Interpretation, Indemnity: After Paying Off Loan Demand, Non-Prevailing Borrower On Economic Duress/Implied Covenant Claims Correctly Assessed With Contractual Fees Of $2,856,956.82 And Costs Of $38,184.54

Contractual Clauses, Including One In A Deed Of Trust, Were Fee Provisions.

            Modern litigation can be expensive.  It can even be more expensive where there is a fee-shifting basis in contractual documents.  Borrower learned that hard lesson in The Palace at Washington Square, LLC v. Mechanics Bank, Case Nos. A164195/A164799 (1^st Dist., Div. 3 Mar. 17, 2023) (unpublished).

            After honoring a loan payoff demand, borrower sued lender for economic duress and breach of the implied covenant of good faith and fair dealing.  Borrower lost those claims, with the referee later awarding lender $2,856,956.82 in attorney’s fees and $38,184.54 in costs under various promissory note, loan agreement, and deed of trust provisions.  Borrower’s appeal did not change the result.

            The trust deed provision entitled “Indemnification” did cover third-party exposure, but also had broad language showing that it also applied to actions between borrower and lender involving the loan documents and deed of trust.  That took it outside case law (see our category “Indemnity”) where only a third-party indemnity clause was involved.  (Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339, 1344-1345 (2005); Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal.App.4^th 500, 508 (1997).) 

            Then, borrower argued that the deed of trust did not allow for a fees award because, based on opinions such as Hart v. Clear Recon. Corp., 27 Cal.App.5^th 322, 325, 327 (2018) and Chacker v. JPMorgan Chase Bank, N.A., 27 Cal.App.5^th 351, 356-358 (2018), the fees were to be added instead to the debt secured by the deed of trust.  The appellate panel disagreed, because there was no such language in the deed of trust, bolstered by a further provision indicated that borrower’s obligations survived repayment of the secured obligations and satisfaction of the deed of trust.

Equity, Fee Clause Interpretation: Prevailing Party Awarded Substantial Fees Despite A Bad Typo In The Contractual Fees Provision

Prevailing Party Did Obtain $538,961 In Fees After Reformation By Trial Judge, Affirmed On Appeal.

            We bloggers have seen this situation before.  A litigant, like the one in California Décor, Inc. v. Medrano, Case No. B313743 (2d Dist., Div. 2 Mar. 15, 2023) (unpublished), prevailed on its own case and defeated a cross-complaint.  So, that naturally took everyone to attorney’s fees recovery, given there was a contractual fees clause allowing fee shifting.  However, here is the language in the clause: “In the event of a dispute between Landlord and Tenant, any and all attorney fees shall be paid by [sic] the prevailing party.”  Losing party argued that prevailing party could not recover fees based on the “by” language, but the trial and appellate courts did not buy it after the lower court used equitable powers to reform the clause to change the language to “to”—fees shall be paid to the prevailing party.  After all, most contractual fees clauses do not penalize a prevailing party by having to pay the fees of an unsuccessful party.

THERE IS A LESSON HERE FOR CONTRACT DRAFTERS—PROOF YOUR DOCUMENTS TO MAKE SURE THEY MAKE SENSE.

Fee Clause Interpretation: Plaintiff Purchaser Obtaining Specific Performance In A Real Estate Transaction Properly Awarded Fees Under A Contractual Fees Provision Against Losing Seller

Closing Costs Provision Was Distinct From Litigation Prevailing Party Provision.

            The next case, Classic Auto Repair, Inc. v. Ida, Case No. B308002 (2d Dist., Div. 8 Mar. 8, 2023) (unpublished) is a real estate primer on contractual interpretation on allocation of attorney’s fees exposure with respect to litigation and closing costs.  The plaintiff purchaser won attorney’s fees in a specific performance action under a contractual fees clause, with the losing party arguing that a different “closing costs” provision prevented a fee award because both parties agreed to bear their own fees as far as closing.

            The appellate court did not buy appellant’s argument.  The paragraph relied on by appellant only applied to closing fees, while a different paragraph did allow for recovery of fees incurred in court proceedings.  In reaching this conclusion, because co-contributor Mike is a real estate transactional attorney among other practice areas and always searches for appellate insights into transactional documents, the appellate panel observed that headings and titles can provide insight into the parties’ intent—with the operative provision entitled “Attorneys’ Fees” and the inapt provision entitled “Closing Costs.”

Fee Clause Interpretation, Homeowner Associations, Reasonableness Of Fees: $132,070.40 Fee Award To Defendant Homeowners Was Affirmed On Appeal As Against Plaintiff Homeowners In Tree Obstruction Dispute

Plaintiffs Pled CC&Rs As A Basis For Nuisance Claim, So There Was Fee Entitlement Under Civil Code Section 1717, CCP Section 1021, And Civil Code Section 5975, With The Fee Award Being Reasonable After A Minor Haircut By The Trial Judge.

            Plaintiff homeowners sued neighboring homeowners in a tree obstruction action based on nuisance and defendants’ alleged violation of certain specified CC&Rs.  After everyone attended an unsuccessful mediation, the matter proceeded to trial and was decided in defendants’ favor.  The trial judge later awarded defendants, as against plaintiffs, attorney’s fees of $132,070.40 (reduced from the $143,381.76 “ask”). 

            Plaintiffs’ appeal in Mascaro v. Brown, Case No. B319419 (2d Dist., Div. 6 Jan. 19, 2023) (unpublished) was unsuccessful.  Although challenging fee entitlement, plaintiffs’ nuisance action was also based on CC&Rs, such that fee entitlement existed under Civil Code section 1717 (based on the CC&Rs fees provision), CCP section 1021 (same; broad CC&Rs fee provision), and Civil Code section 5975 (Davis-Stirling Act fee-shifting provision applicable where governing HOA documents are being enforced).  The fees for mediation work were allowable under section 5975(c) regardless of the CC&Rs’ specific language.  With respect to the amount of the fees awarded, the trial judge did not abuse his discretion given that there was competent fee substantiation in the form of invoices and the lower court did reduce some duplicative, unnecessary work.  Finally, the appellate court agreed that the defendants were also entitled to reasonable appellate fees for their win in the appeal.

Fee Clause Interpretation: “Arising Out Of” Contractual Fee Clause Language Was Broad Enough To Allow A Prevailing Party On A Related Statutory Claim To Obtain Fee Recovery

Trial Court Denied Fee Motion, So It Was Remanded For A Rehearing To Fix Reasonable Fees.

            “Arising out of” language in a contractual fees clause can indeed give rise to fee exposure even where a prevailing party succeeded on a related statutory claim rather than a contract qua contract claim.  Varney Entertainment Group, Inc. v. Avon Plastics, Inc., Case No. G060870 (4^th Dist., Div. 3 Jan. 17, 2023) (unpublished), authored by Justice Goethals, came to that conclusion in reversing a fee denial and remanding for a rehearing to fix reasonable fees.

            There, the contract clause stated: “In the event of any arbitration or litigation, including breach, enforcement or interpretation, arising out of this Agreement, the prevailing party of such litigation shall be entitled to recover reasonable attorneys’ fees, costs, and expenses, including pre-litigation and appellate attorneys’ fees and costs.”  The issue on appeal was whether Avon’s previous unsuccessful appeal arose out of the endorsement agreement by which Avon used Mr. Varney’s name and likeness without his permission.  In the prior appeal, Avon unsuccessfully appealed a trial court’s denial to it of attorney’s fees under Civil Code section 3344’s likeness misappropriate statute.  However, after doing a survey of cases recognizing that “arising out of” contractual language is broad in scope, the panel concluded that the prior appeal did arise out of the Avon-Varney endorsement contract such that fees should not have been denied outright.

Fee Clause Interpretation, Section 1717: Second District Reverses Fee Awards Totaling $680,104.12 As A Matter Of Law

One Award Reversed Because It Only Covered An Arbitration/Ensuing Litigation Even Though No Arbitration Occurred, And Other Award Overturned Because It Was Unclear That Fiduciary Breach Claim Was Not Barred By Santisas.

            San Jose Nihonmachi, LLC v. Miraido Corp., Case No. B323093 (2d Dist., Div. 1 Jan. 4, 2023) (unpublished) shows how the absence of fee entitlement can lead to a reversal of substantial fee awards: in this case fee awards totaling $680,104.12, awards in favor of two different defendant groups.

            The first reversed award of $287,380.75 evaporated based on the narrowness of the fees clause, which covered only prevailing parties in “such arbitration and ensuing legal action.”  Given the parties bypassed litigation and only used the court process, the absence of arbitration occurring was dispositive.  (Kalai v. Gray, 109 Cal.App.4^th 768, 777 (2003).)

            The second overturned award of $392,723.37 involved a voluntary dismissal without prejudice by plaintiff/appellant of an action, invoking a fees clause that was not limited to just arbitration/post-arbitration activities.  Plaintiff did dismiss certain contract claims before they were adjudicated, which did not give rise to fee exposure under Santisas v. Goodin, 17 Cal.4^th 599, 622 (1998).)  The issue on appeal concerned whether a dismissed breach of fiduciary duty claims was based on contract or in tort (because Santisas will not bar fee exposure where a tort is within the ambit of a broadly-worded fees clause).  The appellate court determined that it was “unclear” whether the fiduciary duty claim was not based on contract rather than tort, with any uncertainty meaning that it was “on the contract” and barred by Santisas.  (Kangarlou v. Progressive Title Ins. Co., Inc., 128 Cal.App.4^th 1174, 1178-1179 (2005).)  This last holding provides some discovery tips for the defense to smoke out whether plaintiff’s claims are based in contract or just tort, or both. 

Arbitration, Fee Clause Interpretation: $1,648,620.17 Contractual Fee Award By An Arbitration Award Against FeeDx Affirmed In A Ninth Circuit Opinion

Arbitration Tribunal’s Fee Award Was Not Completely Irrational In Nature Under The FAA.

            In HayDay Farms, Inc. v. FeeDx Holdings, Inc., Case Nos. 21-55650/21-55698 (9^th Cir. Dec. 19, 2022) (published), two parties (HayDay and FeeDx) entered into an exclusive distribution agreement with each other through Nippon, providing for arbitration and making Nippon liable for HayDay’s breaches.  Later, the three parties entered into a settlement agreement, which modified but did not replace the exclusive distribution agreement.  The settlement did not resolve the disputes, which went to arbitration resulting in substantial arbitration awards in favor of HayDay and Nippon as against FeeDx.  The arbitration award was over $26.2 million, augmented by a contractual fees and costs award of $1,648,620.17.  The district court vacated about $7 million of the merits award, but it left the remaining portion and fees/costs awards intact.

            The parties appealed.  This was a good move by HayDay and Nippon, because the Ninth Circuit reinstated the $7 million previously vacated portion of the award.  With respect to FeeDx’s challenges, they did not win on appeal.  The main problem is that the standard for vacatur under the FAA, 9 U.S.C. § 10(a)(4), is exceedingly high, meaning that the arbitration tribunal manifestly disregarded the law or the award was completely irrational.

            The main fee clause in the settlement agreement provided: “If FeeDx or Hayday brings legal action to enforce its rights under this Settlement Agreement, the prevailing party will be entitled to recover its expenses (including reasonable attorneys’ fees) incurred in connection with action and any appeal.” FeeDx argued that Nippon could not be awarded fees because it was not a party to the agreement.  The Court of Appeals disagreed, given that the “prevailing party” language was broad and given that Nippon was potentially liable for HayDay’s breaches—the tribunal’s interpretation of this clause as allowing fees to Nippon was not completely irrational under the circumstances. 

Fee Clause Interpretation, Lodestar: $547,465.10 Fee Award And $23,589.25 Costs Award To Prevailing Defendant Sellers Affirmed On Appeal

Liability Cap Did Not Apply To Fees, Out-Of-County Attorneys Showed Good Cause To Represent Defendants In Tuolumne County, And Trial Judge Reduced Fee Request By 20%.

            In Apartment Rental Assistance II, Inc. v. 80 Oak Hills, L.P., Case No. F083238 (5^th Dist. Dec. 13, 2022) (unpublished), buyer plaintiffs lost a summary judgment to seller defendants where three purchase agreements had separate fee clauses.  Defendants moved for fees of $677,465.10 and for $23,589.25 in costs, with the lower court awarding them $547,465.10 in fees and the entire “ask” in costs.  Plaintiffs appealed.

            They lost.  Their main argument on entitlement was that there was a “fee cap” in one of the agreements, but a close look at it showed that it only applied to liability determinations—reinforced by no similar cap in the actual fee provisions.  With respect to the amount of lodestar fees awarded, the Fifth District found no abuse of discretion.  Not only did the lower court reduce the fees request by about 20% for excessive associate compensation and assembly of binders, but the out-of-town lead counsel representing defendants showed there was good reason for his firm to be litigating in Tuolumne County because he had years of experience with the clients on real estate matters such that they were justified in not using local counsel without his “experience curve.”

Fee Clause Interpretation, Mediation: Fee Clause Allowing Only Prevailing Party Attorney’s Fees For Mediation Or Arbitration Proceedings Enforced As Written

Fees Clause Did Not Allow For Recovery Of Fees In Litigation.

            In Glass v. Whills, LLC, Case Nos. B304806 et al. (2d Dist., Div. 4 Aug. 10, 2022) (unpublished), both the trial and appellate court were dealing with a civil litigant’s claim for prevailing party attorney’s fees recovery under a fees clause providing that any disputes must be submitted first to mediation and, if unresolved, to binding arbitration, and that “[t]he non-prevailing party in any such mediation or arbitration, as determined by the mediator or arbitrator, shall pay the prevailing party’s court cost and attorneys’ fees.”  The lower court denied the litigant’s motion for fees, finding that the mediations in which the parties participated failed to result in a prevailing party resolution or determination, and the parties did not thereafter pursue arbitration.

            The appellate court affirmed that conclusion.  It found that the clause was unambiguous; the binding mediator had the ability to determine the prevailing party such that the absence of language indicating a court could award prevailing party fees sealed the deal.

Deeds Of Trust, Fee Clause Interpretation: Borrower Losing Wrongful Foreclosure Action Was Properly Assessed With Contractual Attorney’s Fees Under the Note To The Tune Of $878,067.11

“Security First”/Antideficiency Arguments Did Not Prevail Because Contractual Fee Exposure For Wrongful Foreclosure Claims Were Independent Contractual Obligations.

            This next appeal is a somewhat related appeal to our independent July 26, 2022 post regarding sanctions awarded against plaintiff borrower’s attorney for violation of trial preparation rules.  In Shiheiber v. JPMorgan Chase Bank, N.A., Case No. A160189 (1^st Dist., Div. 2 July 28, 2022) (unpublished), plaintiff lost wrongful foreclosure claims against lender (the merits ruling affirmed in an earlier appeal), with the trial judge assessing $878,067.11 in contractual fees against borrower and in favor of lender based on a promissory note fee clause.

            That fee award was affirmed on appeal, with borrower not challenging the amount of the award, but only challenging fee entitlement.  Because the wrongful foreclosure loss triggered contractual fee exposure under separate loan documents, the fee award was legally warranted.  (See Passanisi v. Merit-McBride Realtors, Inc., 190 Cal.App.3d 1496, 1507-1509 (1987); Flynn v. Page, 218 Cal.App.3d 342, 349 (1990); Jones v. Union Bank of California, 127 Cal.App.4^th 542, 551 (2005).)  These cases establish “that a foreclosure sale does not extinguish or preclude enforcement of a prevailing party attorney fee clause in the loan instruments.  Such a provision represents a separate contractual covenant, distinct from the covenant to repay the loan on specified terms, that is simply intended to alter the traditional American rule that each side bear their own attorney fees in the event of litigation between them.”  (Slip Opn., p. 9.)  The promissory note clause was broad enough to encompass tort wrongful foreclosure claims.  (Yoon v. Cam IX Trust, 60 Cal.App.5^th 388, 391, 393 (2021).)  So, the fee award was upheld.

Fee Clause Interpretation: Denial Of Attorney’s Fees Was Reversed Because Debt Extension Agreement Was Inextricably Interrelated With Loan Agreement Containing A Fees Clause

Looking Only At The Debt Extension Agreement Was Too Myopic In Nature.

            In Cable v. O’Neill, Case No. D079096 (4^th Dist., Div. 1 July 7, 2022) (unpublished), debtor defaulted under a loan agreement containing a contractual fees clause.  Creditor and debtor then entered into a debt extension agreement not having a fees clause, but obviously referencing the original loan agreement and inextricably interrelated to that first agreement.  The lower court recognized plaintiff creditor was a prevailing party after entering judgment for the unpaid loan amount, but it denied fees because there was no fees clause in the subsequent extension agreement.  The 4/1 DCA reversed, finding that the two agreements were inextricably interrelated such that fees should be awarded on remand to plaintiff creditor.

Allocation, Fee Clause Interpretation: Plaintiff Owner Losing A Variety Of Intertwined Claims Arising From A Home Improvement Contract Was Properly Assessed With Contractual Party Fees As Against The Home Improvement Installer

Installer Was Awarded $1,223 In Costs And $95,531.68 In Attorney’s Fees.

            Plaintiff owner sued a home installer on various contractual, tort, and statutory theories for a job of under $4,000, with there being a home improvement contract with a fees clause covering performance issues under the contract.  Owner lost across the board, with the lower court awarding installer $1,223 in costs and $95,531.68 in attorney’s fees.  The 2/6 DCA affirmed in Plyley v. Renovating Specialist, Inc., Case No. B309457 (2d Dist., Div. 6 May 31, 2022) (unpublished).  The contractual fees clause was broad enough to encompass contractual and interrelated tort/statutory claims, such that no apportionment was required.  The appellate panel also indicated that installer was entitled to appellate fees and costs as the victor, remanding to the trial court with directions to do so upon a properly filed motion. 

Fee Clause Interpretation: $196,231.50 Attorney Fee Award To Prevailing Party Seller Of Real Property Affirmed On Appeal Despite Seller’s Failure To Attempt Mediation Pursuant To Form Purchase Agreement’s Fee Provision

Fee Provision Without Mediation Requirement In Later Jointly Drafted Cooperation Agreement Governed.

            In Emery v. Marchick, Case No. B307999 (2d Dist., Div. 1 May 23, 2022) (unpublished), defendant used a California Association of Realtors’ Residential Purchase Agreement form in her offer to purchase a residential property from plaintiff.  The form purchase agreement contained an attorney fee provision requiring that before filing a lawsuit, the parties attempt to resolve through mediation disputes arising out of the agreement or resulting transactions. Pursuant to an accepted requirement in plaintiff’s counter offer, the parties entered into a jointly drafted Cooperation Agreement regarding a lot line adjustment.  The Cooperation Agreement also contained an attorney fee provision, but it did not require mediation of disputes. Well, a dispute arose and plaintiff filed a complaint claiming defendant breached the Cooperation Agreement – with judgment entered in plaintiff’s favor in the amount of $285,000 plus another $196,231.50, out of the $204,386.50 requested, in prevailing party attorney fees. 

            On appeal, defendant argued that plaintiff was not entitled to an award of attorney fees because she failed to attempt to mediate before filing her complaint.  The 2/1 DCA disagreed with defendant’s contention and affirmed.  For starters, the attorney fee provision in the Cooperation Agreement governed because the parties entered into it after the form purchase agreement and the fee provision the parties included in the Cooperation Agreement superseded.  (Civ. Code, § 1585; Frangipani v. Boecker, 64 Cal.App.4th 860, 863 (1998).)  Additionally, pursuant to Civ. Code, § 1651, where there is inconsistency in terms, those negotiated by the parties prevail over form terms which are not separately negotiated.  Finally, pursuant to Civ. Code, § 1641, courts interpret contracts to give effect to every part and avoid interpretations that render part of a contract as surplusage. (Rice v. Downs, 248 Cal.App.4th 175, 186 (2016).)  Interpreting that the form purchase agreement’s fee provision controlled would reduce the latter Cooperation Agreement’s fee provision to surplusage – something the appellate panel declined to do.

Fee Clause Interpretation, Section 1717: $157,191 Fee And $7,219.60 Costs Award Under A Contractual Fees Clause Affirmed On Appeal

Defendants’ Nonsignatory Status Did Not Change The Result Because Plaintiffs Would Have Been Entitled To Fees Had They Won.

            Based on a broad contractual fees clause in an agreement governing a dispute over the use of large electric sign in the City of Long Beach to advertise car dealerships in the area, defendants obtained a summary judgment against plaintiffs.  The lower court then awarded prevailing party fees and costs to defendants to the tune of $157,191 in fees and $7,219.60 in costs.  The appellate court rejected plaintiffs’ challenges to the fee award in H.T.L. Properties, LLC v. Speck, Case No. B302436 (2d Dist., Div. 2 Apr. 26, 2022) (unpublished).  The principal argument on appeal was that defendants were nonsignatories to the agreement, so no fees were warranted.  Appellants, you are mistaken, said the appellate panel, pointing out that plaintiffs would have been entitled to fees against the nonsignatories such that the reciprocal entitlement ran in favor of the nonsignatories under Civil Code section 1717—citing Brown Bark III, L.P. v. Haver, 219 Cal.App.4^th 809, 819 (2013). 

Estoppel, Fee Clause Interpretation: A Little Over $320,000 Fee Award Gets Reversed As A Matter Of Law Because The Clause Did Not Cover The Scope of the Adjudicated Dispute

Interpretation Of Fee Clause Wording Is A Fertile De Novo Review Issue For Losing Litigants Facing Fee Exposure.

            On appeal, one of the best issues is whether there is fee entitlement. In many disputes, this means does the fee clause cover the dispute which was adjudicated before a court or jury?  If the answer is no, even though a trial judge decides otherwise, an appellate court can reverse the fee award as a matter of law.

            That is what happened in BFCAP Investments, LLC v. Lifehouse Parkview Properties, LLC, Case No. B307388 (2d Dist., Div. 4 Apr. 21, 2022) (unpublished). There, defendant sellers won a summary judgment against plaintiff buyer, with the trial judge awarding a full request of a little over $320,000 in attorney’s fees under a contractual fees clause. (Even then, the trial judge was concerned that the defendants failed to quote the full fees clause so that a proper consideration of the fee award could be made, with the defense apologizing at some stage for this omission.) Nonetheless, the appellate court reversed, deciding that the fees clause only related to disputes over Acquired Assets rather than property post-default issues.  Even though plaintiff had prayed for fees, the reviewing court did not view this as an estoppel because defendants still had to show their own entitlement to fees.

Fee Clause Interpretation, Indemnity: Landlord Prevailing In Breach Of Contract Action Watches $496,757.31 Fee Award Disappear On Appeal

The Parties’ Leases Did Not Include Attorney Fees Provisions, And The Trial Court Erred In Finding That The Leases’ Third Party Indemnity Provisions Permitted Recovery Fees In A Direct Breach Of Contract Action

            In Blackburn v. County of San Diego, Case No. D076904 (4^th Dist., Div. 1 February 24, 2022) (unpublished), the trial court awarded $496,757.31 in attorneys’ fees to the prevailing landlord plaintiff in a breach of contract action against the County of San Diego – finding the language of the indemnity provisions in the parties’ leases to be so broadly worded that they allowed plaintiff to seek direct indemnity from tenant in the form of attorney fees.

            Citing its previous decision in Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016) [discussed in our October 24, 2016 post], the 4/1 DCA reversed – finding nothing in the indemnity provisions to suggest that the provisions were not limited to third party claims – nor anything that specifically addressed the issue of, nor expressly permitted, recovery of attorney fees in an action on the contract between the parties.  “To find a right to attorney fees in a direct action under an ordinary indemnity provision, as here, would invest every agreement containing a standard third party indemnity clause with a prevailing party attorney fee clause. This is particularly inappropriate because section 1717, subdivision (a), which governs the award of contractual attorney fees, applies only when the contract ‘specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party . . . .’ The indemnity clause here does not ‘specifically’ refer either to actions to enforce the contract or to the prevailing party. Rather, it is a third party indemnity clause. The court erred in construing it otherwise.” (Alki Partners, supra, 4 Cal.App.5th at p. 606.)

Deeds of Trust, Fee Clause Interpretation: Borrower Prevailing On Quiet Title And Equitable Lien Claims Based On Deeds Of Trust Properly Denied Prevailing Party Fees Based On The Wording Of The So-Called “Fee Clauses”

Look At the Wording, Folks!

            In determining whether there is attorney’s fees entitlement, one must carefully look at the wording of the clauses under which fees are sought as well as the documents which are being sued upon.  Although the borrower technically prevailed on some claims against the lender, the absence of fee entitlement properly led to a conclusion that borrower was not entitled to fees.

            What happened in HSBC Bank USA v. Malekan, Case No. B299157 (2d Dist., Div. 4 Feb. 15, 2022) (unpublished) is that a borrower did prevail, even upon reversal (which might have made a difference, but did not), on some quiet title/equitable lien claims brought by lender under a deed of trust.  After getting some victories, borrower moved for attorney’s fees under clauses in the deed of trust and promissory note.  The lower court denied fees in entirety, so an appeal was brought by borrower.

            The denial of fees was affirmed.  The main problem for borrower was that the deeds of trust clause advocating for fees was not a fees clause, because it only allowed fees to be added to the secured debt, reasoning supporting a rejection of fees under Chacker v. JPMorgan Chase Bank, 27 Cal.App.5^th 351 (2018) [reviewed in our September 20, 2018 post] and Hart v. Clear Recon Corp., 27 Cal.App.5^th 322 (2018) [reviewed in our September 19, 2018 post].  With respect to the argument that fees were required to be awarded under the promissory note, lender did not sue under that instrument, so no go!

Family Law, Fee Clause Interpretation: Fee Clauses In Dissolution Proceeding Did Not Preclude Ex-Wife’s Recovery Of Fees In Subsequent Domestic Violence Prevention Act Proceeding

Case Remanded On Ex-Wife’s Request For $337,236 In Fees For DVPA Proceeding.

            Where a litigant is involved with classic contractual interpretation of a fees clause without any conflicting extrinsic evidence, the result can be a de novo review shocker as revealed in Marriage of Fischer, Case No. A160179 (1^st Dist., Div. 2 February 8, 2022) (unpublished). 

            In this one, ex-wife prevailed in a DVPA proceeding against ex-husband despite the existence of an earlier dissolution agreement with allocation of how attorney’s fees were to be resolved.  However, nothing in the agreement or hearings specified that the dissolution agreement applied to the subsequent DVPA proceeding where wife prevailed and sought $337,236 in attorney’s fees.  The lower court denied fees, but the appellate court reversed after scouring the record and determining that the distinct DVPA proceeding was not encompassed within the dissolution agreement provisions with respect to fees.  So, the matter was remanded with a potential bright upside for ex-wife given the lack of conflicting extrinsic parol evidence.

Fee Clause Interpretation, POOF! After A Merits Reversal, Language Of The Fees Clause Meant That The Reversed Party Did Not Prevail

Fee Clauses Without Prevailing Party Language Have Such A Condition Implied.

            Drink Tank Ventures, LLC v. Real Soda in Real Bottles, Ltd., Case Nos. B29881/B302215 (2d Dist., Div. 2 Nov. 10, 2021) (published) is an interesting case where a “prevailing party” had its intentional interference claim reversed as a matter of law.  At the lower court, where judgment was entered on this reversed claim, the trial judge granted the “then” prevailing party $280,700 in attorney’s fees based on a nondisclosure contract clause (out of a requested $785,981, based primarily on overbilling as well as denying a multiplier request).  The attorney’s fees award also evaporated because of the reversal of the merits judgment.  The appellate court looked at the fees clause, which did not have “prevailing clause” language, but implied it under CCP § 1021 and Civil Code $ 1717.  Once what was done, based on the reversal, the fee award went POOF!

Arbitration, Fee Clause Interpretation, Landlord/Tenant: 1/3 DCA Affirms Trial Court’s Denial Of Attorney Fees To Prevailing Tenant

Fees Incurred For The Court Proceedings Were Part Of The Arbitration Process Called For In The Lease For Resolving Fair Market Rent Value And Not Recoverable Under The Prevailing Party Provision Which Applied To An Action Involving A Breach Of The Contract Or Determination of Rights

            In California Union Square L.P. v. Saks & Company LLC, Case No. A162043 (1^st Dist., Div., 3 October 29, 2021) (published), defendant tenant exercised its option to renew its lease following the initial 25-year term.  Because landlord and tenant were unable to agree on the fair market value of the base rent, the dispute resolution provision of the lease was triggered – which mandated arbitration.  Tenant ultimately prevailed after two arbitrations and multiple litigation proceedings in superior, federal, and appellate courts – including a petition for review with the California Supreme Court (which was denied).   Tenant then moved for roughly $1 million in attorneys’ fees – expressly noting that, pursuant to the fees provision of the lease, it was seeking fees incurred only in court proceedings, not any of the fees or costs incurred in the two arbitrations.   The trial court denied tenant’s motion following full briefing and a hearing.

            Tenant argued on appeal that the trial court erred because the parties’ lease – although providing that arbitration costs were to be divided equally between the parties – included a provision mandating “that the prevailing party in any action or proceeding to enforce the [l]ease or obtain a declaration of rights under the [l]ease recover its attorneys’ fees and costs from the losing party.”  Tenant claimed this prevailing party provision controlled the allocation of fees for the various court proceedings.  The appellate panel disagreed – finding the court proceedings were not undertaken for the purpose of enforcing or obtaining a “declaration of rights” under the lease, such as a dispute over a contractual term or obligation.  Rather, the court proceedings arose from the parties’ obligations under the provision for disputes on the fair market value of the base rent requiring arbitration.  As a result, the fees incurred for the court proceedings were a part of the process for resolving the value of the base rent and not recoverable under the prevailing party provision.

Fee Clause Interpretation, Reasonableness Of Fees: Attorney Awarded Prior Frivolous Appeal Sanctions Denied “Second Bite” Request For Civil Code § 1717 Additional Fees Based On Prior Representations Made To Court Of Appeal On Reasonableness Of Work

Also, Fee Clause With “Incurred” Language Means That Fees Did Need To Be Incurred.

            The result in Korff v. Goodrich, Case No. A160917 (1^st Dist., Div. 2 Oct. 27, 2021) (unpublished) shows the wisdom in the saying “pigs get fat, hogs get slaughtered,” coined by Rubbery Figures, a satirical rubber puppet series screened in Australia in the 1890s. 

            What happened in this dispute between caregiver and deceased husband’s daughter, which led to a will contest and an eventual settlement agreement with a fees clause, is that caregiver took position inconsistent from the settlement and eventually lost three appeals after adverse decisions were made at the trial court stage.  The appellate court earlier determined that the appeals were frivolous, awarding fees as sanctions to the main prevailing party’s attorney in the sum of $49,875 (but totaling $91,084 as to other attorneys involved)—with the main attorney indicating to the appellate court that this amount represented 142.5 hours at $350/hour.  Then, before the lower court, the main attorney sought another $103,000 in compensation for additional hours at a $675 hourly rate.

            The lower and appellate courts did not buy it, with the reviewing court affirming the lower court’s denial of the requested additional compensation.  After all, main attorney’s “additional ask” contradicted representations made to the appellate court such that he was judicially estopped from claiming otherwise.  Also, the fee submissions raised the specter that there was duplicative work by three attorneys (“too many cooks in the kitchen”).  Finally, attorneys asking for additional fees did not show that their client actually “incurred” fees, although such a requirement in a fee agreement is something which must be satisfied.  (San Diego Partnership v. San Dieguito River Valley Regional etc. Authority, 61 Cal.App.4^th 910, 915, 919 (1998). 

Fee Clause Interpretation, Section 1717: Where Cross-Complaint Did Not Involve Any Enforcement Or Promise Breaches Of A Purchase Agreement With A Fees Clause, Attorney’s Fees Lacked Any Entitlement Basis

Section 1717 Did Not Change The Analysis, Because The Scope Of The Fee Clause Can Only Relate To Contractual Claims—Meaning CCP § 1021 Must First Be Overcome.

            Otay Land Co., LLC v. U.E. Limited LLC, Case No. D077274 (4^th Dist., Div. 1 Oct. 20, 2021) (unpublished) reminds us that Civil Code section 1717 reciprocity principles do not kick in unless the fees clause, by its terms, covers the claims which are at issue in the case.  If not, CCP § 1021 is not overcome, and section 1717 makes no difference.

            In this case, plaintiff/cross-defendant prevailed on its positive claims and on the claims of defendant/cross-complainant such that plaintiff/cross-defendant was the prevailing party.  Cross-complainant had prayed for attorney’s fees in its prayer, with the trial judge denying an earlier motion to strike because a 1998 purchase agreement was at least proffered as a basis for fee entitlement.  The purchase agreement had a contractual fees clause which read this way: “If any legal action . . . is brought for the enforcement of this Agreement, or because of a breach, default, or misrepresentation in connection with this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.”  After its win, plaintiff/cross-defendant moved for fees under the purchase agreement, a request denied by the trial court.

            The 4/1 DCA affirmed the fee denial.  Nothing in the two cases fell within the scope of the fee clause, with misrepresentation allegations only relating to an adverse possession claim rather than having causal connection with the 1998 purchase agreement containing the fees clause.  Plaintiff/cross-defendant argued that Civil Code section 1717 altered the result, but the appellate court reminded everyone that its reciprocity principle only applies if the fee clause could be interpreted broadly enough to encompass the claims at issue in the cases—meaning Code of Civil Procedure section 1021 (leaving the parties to strike their own bargain on fee recovery) having to be surmounted before section 1717 is considered.  Finally, plaintiff/cross-defendant claimed that the other side was estopped from denying fee entitlement based on the prayer in the cross-complaint and earlier motion to strike victory; however, this was rejected because a mere assertion of the right to fees does not operate as an estoppel where there is no true fee entitlement under the contractual clause.  (R.W.L. Enterprises v. Old Castle, Inc., 17 Cal.App.5^th 1019, 1035-1036 (2017).) 

Family Law, Fee Clause Interpretation: Wife Properly Allowed Section 217 Sanctions Against Husband For Divorce Decree Enforcement Purposes

However, Lower Court Properly Denied Her Fees On Husband’s Prior Efforts To Set Aside The Martial Settlement Agreement.

            In Marriage of Mirza, Case Nos. G057613 et seq. (4^th Dist., Div. 3 Sept. 1, 2021) (unpublished), husband and wife entered into a marital settlement agreement and divorce decree based upon the agreement.  Husband then attempted to set aside the MSA and decree, but he was ultimately unsuccessful.  The lower court denied wife’s fees relating to husband’s efforts to set aside the divorce decree, but the court did grant wife sanctions of $100,000 under Family Code section 271 to enforce the divorce decree after the set aside effort did not resonate.  The 4/3 DCA, in an opinion authored by Justice Goethals, affirmed.  A nice “line” was drawn by the family law judge, with the set aside efforts not clearly falling within the MSA and with husband’s set aside attempt to rescind being a discretionary call on how to adjust the equities.  However, wife’s subsequent efforts relating to the divorce decree were justified such that the $100,000 award was sustained on appeal.

Costs, Deadlines, Fee Clause Interpretation, Lodestar: L.A. Groundwater Case Fee And Costs Awards Remanded For A Revisit By The Fifth District

Variety Of Costs, Fee Entitlement, And Lodestar Issues Explored In This Unpublished Opinion.

            Antelope Valley Groundwater Cases, Case No. F083138 (5^th Dist. Aug. 24, 2021) (unpublished) was a Los Angeles-venued case which produced a global settlement complete with a provision for certain parties to bear attorney’s fees and costs by class counsel.  Class counsel sought to recover $3,348,160 in attorney’s and paralegal fees (4,538.8 hours at $720 per hour for attorneys; 679.5 hours at $110 or $125 per hour for paralegals).  However, the trial judge awarded class counsel $2,269,400 in attorney’s fees and $80,224 in paralegal fees, reducing the attorney requested hourly rate from $720 to $500 per hour.  He also allocated fees among different parties and rejected two parties’ attempts to pay the awards out over time under Government Code sections 984 and 970.6.  He denied a 2.5 positive enhancement request.  The trial judge also taxed over $24,000 in routine costs requested by class counsel, triggering an appeal by the class.

            The Fifth District (although based in Fresno, not Los Angeles, but assigned the case on appeal for neutrality reasons) reversed and remanded with some specific instructions.  With respect to fees, the appellate panel initially determined that the settlement agreement did authorize fee/costs entitlement and then found that the trial judge’s reasoning on the lodestar was unclear, especially as to why the requested hourly rate was discounted downward from $720 and with a “Great Recession” lower rate rationale not explaining why higher rates were not justified from when it ended (2010 going forward).  Equally salient was the fact the lodestar could not be diminished solely or primarily because a governmental entity was the party with fee/costs exposure.  But the lower court did properly allocate fee/costs recovery among some parties and correctly denied the periodic payment requests because a fees/costs judgment was not a tort judgment against a public entity under section 984 and the requesting entities did not show that the L.A. County Board of Supervisors passed a hardship ordinance for purposes of satisfying section 970.6.  Finally, on the routine cost issues, class counsel did not have to use Judicial Council costs memorandum forms (they are optional only), the trial judge impliedly allowed counsel more time to file the costs memorandum, and there were arithmetic discrepancies which the appellate court could not decipher—sending all of this back for a re-do, including a relook at the enhancement request.               

Construction, Fee Clause Interpretation, Indemnity, Insurance: Subcontractors Not Liable For Gen. Developer Defense Fees Not Relating To Their Work, And Equitable Subrogation Action Fees For Developer Not Recoverable Under Ambiguous Clause

At The End, Joint/Several Liability Theory On The First Issue Was Rejected, And Ambiguity Construed Against Developer Drafter On The Second Issue.

            This next post might interest construction and insurance practitioners, although it involves the interesting intersection of contractual and insurance equitable subrogation issues—with complexities teeming!

            In Berg v. Pulte Home Corp., Case No. C086890 (3d Dist. July 30, 2021) (partially published; fee discussions not published), developer Pulte was defended by insurer St. Paul in a residential construction lawsuit where cross-claims or intervention claims were asserted against various Pulte subcontractors.  St. Paul sued three of Pulte’s subcontractors for equitable subrogation based on the subcontractors’ failure to defend Pulte (such that the insurer had to come out of pocket) to the tune of $193,137.68 in attorney’s fees.  The lower court trifurcated the resolution:  the first phase was a bench trial on equitable subrogation entitlement (found in St. Paul’s favor); the second phase was a jury trial on amounts to be awarded insurer under equitable subrogation (the jury did award certain amounts to St. Paul); and the third phase was another bench trial on the settlement offsets/credits to be factored into the ultimate award (with St. Paul getting some positive judgments, but small amounts after offsets/credits).  However, along the way, the lower court (1) denied that the subcontractors were jointly and liable to St. Paul (as subrogaee to Pulte) for general defense costs not related to the subcontractors’ specific scope of work; and (2) denied insurer’s request for fees in prosecuting the equitable subrogation claim based on a performance default clause in a master agreement between Pulte and the subcontractors.

            The Third District affirmed the lower court’s fee determinations.  As to the first issue, the appellate court followed two prior decisions finding that the subcontractors are only liable for fees relating to their specific scopes of work, not general attorney’s fees relating to the overall defense of the case on behalf of Pulte.  (Pulte Home Corp. v. CBR Electrics Inc., 50 Cal.App.5^th 216, 225 (2020); Carter v. Pulte Home Corp., 52 Cal.App.5^th 571, 586-587 (2020).)

            With respect to issue #2, the appellate court did note that the default clause was ambiguous so that both sides had a colorable argument on whether it encompassed general equitable subrogation fees.  However, the killer for St. Paul/Pulte was that it was ambiguous such that the ambiguity was construed against drafter Pulte—with the absence of a specific attorney’s fees clause in the default provision not clearly establishing the basis for fee entitlement. 

Costs, Deadlines, Fee Clause Interpretation: Lender Defending Against Borrower’s Attempts To Enjoin Eventual Nonjudicial Foreclosure Properly Awarded $9.235 Million In Fees

However, Costs Award Of $332,704.20 Reversed For Failure To Timely File A Costs Memorandum, Although The Appellate Court Did Indicate Lower Court Could Entertain CCP § 473 Default Motion Based On Surprise If Lender Wanted To Renew Costs Issue.

            This next case, Rincon EV Realty LLC v. CP III Rincon Towers, Inc., Case Nos. A155104/A155284 (1^st Dist., Div. 4 June 10, 2021) (unpublished), is an interesting borrower/lender case which has yo-yoed between lower and appellate courts for several years after the lender eventually nonjudicially foreclosed on Rincon Towers (a San Francisco apartment complex).  However, lender did prevail in an action initiated by borrower to forestall foreclosure, with lender then seeking substantial attorney’s fees and costs under a Loan Agreement clause.  After an initial reversal and remand, lender sought $12.2 million in fees and costs, with the lower court awarding $9,235,712.93 in fees, but with it deferring a cost ruling until a new cost memorandum was filed.  Lender did that, claiming $909,548.03 in costs, $357,603.06 in statutory fees and $551,944.97 in costs awardable under the Loan Agreement.  The lower court only awarded statutory costs, reducing the request down to $332,704.30 as far as a court order.  Borrower appealed.

            Borrower argued that lender could not obtain contractual fees because the loan was non-recourse; however, the problem here was that the Loan Agreement contractual fees clause did apply to situations where the lender had to defend against a borrower’s action, rather than commence a lender action or suit against borrower seeking a monetary judgment.  Beyond that, the contractual “proceeding” language did not preclude lender from bringing a fees motion, because a “proceeding” was more akin to an “action” that lender did not commence.  Borrower next argued that the fee award was precluded by anti-deficiency California borrower protections, but that contention was not successful because borrower brought an unmeritorious suit to which lender had to respond—an action which did not implicate a lender attempting to renege on a non-recourse loan.  (See Jones v. Union Bank of California, 127 Cal.App.4^th 542, 547-548 (2005); Passanisi v. Merit-McBride Realtors, Inc., 190 Cal.App.3d 1496, 1509 (1987).)  So, the substantial fee award was affirmed on appeal.

            That brought the appellate court to the costs award, which was a little tricker to resolve.  The 1/4 DCA agreed that the costs memorandum was untimely filed, past the 15-day notice of entry filing deadline even though there were some issues still pending in the appellate court—the best measure was to protectively file it, something lender did not do by quite a bit of time.  However, that did not end the matter.   The appellate court was sympathetic to the fact that the complex procedural context of the case might have been a surprise to the lender such that a CCP § 473 discretionary motion to allow the filing of the belated costs memorandum might be successful.  But it did not want to do that, reversing the smaller component of the costs award (the larger component were damages, and rejected because they were not pled and were not subject to damages proof below) and remanding to the lower court to decide if discretionary default relief should be granted.  So, there might be hope on the cost component for lender.

Fee Clause Interpretation: “Arising Out Of” Language In Escrow Agreement Did Encompass Fraudulent Concealment Victory By Plaintiff Buyers Against Defendant Seller And Affiliates

$412,500 Fee Award Under Escrow Fees Contract Clause Affirmed On Appeal.

            In Kim v. Lee, Case Nos. B295665/B303317 (2d Dist., Div. 7 May 26, 2021) (unpublished), plaintiff buyers won a fraudulent concealment claim against defendant seller/affiliates.  The buyers then moved for an attorney’s fees award under a broad escrow fees clause containing “arising out of” language relating to disputes between the two sides.  The lower court awarded buyers $412,500 out of a requested $591,936 in fees (disregarding a positive multiplier request).  The appellate court affirmed the fee award based on a de novo review of the contractual fee clause.  This sort of broad language has been held to cover torts in instructive earlier cases, so there was no reason to find otherwise given the similarity of the fees clause language to clauses in those previous published appellate court decisions.  (See, e.g., Lerner v. Ward, 13 Cal.App.4^th 155, 160 (1993); Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4^th 1338, 1344 (1992).)

Fee Clause Interpretation, Settlement: Post-Settlement Fee Efforts Were Not Compensable Under Specifically Crafted Fees Clause Agreed To By The Parties

About $2.2 Million In Fees, Plus Multiplier, Denied To Plaintiff In Supplemental Fee Request.

            Willis v. L.A. County Waterworks Dist. No. 40, Case No. F082766 (5^th Dist. May 26, 2021) (unpublished) is an example of where a carefully crafted fees clause in a settlement agreement may govern supplemental fee requests by a claiming party.

            This had to do with a plaintiff/class representative in the Antelope Valley Groundwater cases which, previously, had been awarded pre-settlement fees of about $3.8 million.  The parties reached a settlement agreement allowing for post-judgment fees under very specific circumstances.   Plaintiff moved for supplemental fees of $1.558-2.143 million plus a positive multiplier.  However, both the trial and appellate courts agreed the supplemental fee request should be denied because the predicate “triggers” for a supplemental fee request were not met, per the settlement agreement fees clause.  No extrinsic evidence was introduced, such that the review of the “triggers” was a de novo look-at, and the fees clause did not allow for supplemental fee recovery. 

Fee Clause Interpretation, Retainer Agreements, Section 1717: Postjudgment Order Awarding Attorney $1,232,735 In § 1717 Fees And Costs Incurred Defending Against Former Client’s Tort And Contractual Claims And Cross-Claim For Unpaid Fees Affirmed

Retainer Agreement’s Broadly-Worded Fee Provision Allowed For Recovery Of Fees For Attorney’s Defense Of All Claims By Former Client, Including Tort Claims – The Defense Of Which Were Necessary To Defeat The Contractual Claim.

            In Singh v. Molnar, Case No. B303366 (2d Dist., Div. 7 April 30, 2021) (unpublished), defendant attorney was awarded $1,232,735 in Civ. Code § 1717 fees and costs in a postjudgment order after prevailing against former client’s numerous contractual and tort claims and in his cross-claim against former client for unpaid fees.  Former client’s tort claims were based on attorney taking possession of a 10-year-old Mercedes (offered to former client as part of a settlement of another case) as an offset for fees owed by former client. 

            On appeal, former client argued that attorney improperly sought fees for attorneys who worked at his own firm defending against the tort claims, and that fees incurred in defense of the tort claims were not “on a contract” as required by § 1717.

            The 2/7 DCA affirmed. 

            Although tort and noncontract claims are generally not subject to § 1717 and its reciprocity principles, it does not prevent parties from contracting to allow for recovery of fees in tort actions.  Therefore, the question before the panel was not whether former client’s tort claims were “on the contract,” but whether the fees incurred in defending against those claims were covered by the retainer agreement.  The appellate panel found that former client’s tort claims fell within the scope of the broadly-worded fee provision because he sought a declaration of whether he owed money under the retainer agreement, or whether attorney owed money after taking the offset for the fees owed.  Agreeing with the trial court, the panel concluded that attorney’s defense of the tort claims was necessary to succeed on the breach of contract claim – and that the parties’ communications about the Mercedes/offset underscored that their disagreement was directly related to their dispute about contractual payment obligations under the retainer agreement.

Deeds Of Trust, Fee Clause Interpretation: Third District Affirms $133,176.15 Fees And Costs Award To Lender Defeating Plaintiff’s Lawsuit For Wrongful Foreclosure, Concealment And Breach Of Contract

Fee-Shifting Provisions In The Parties’ Loan Documents Entitled Prevailing Lender To Fees For Defending Foreclosure And Enforcing Plaintiff’s Debt Obligation, And Were Worded Broadly Enough To Encompass Both Contract And Tort Causes Of Action.

            In Simon v. Wells Fargo Bank, Case No. C086688 (3d Dist. April 12, 2021) (unpublished), plaintiff sued Wells Fargo Bank for breach of contract by overcharging interest, wrongful foreclosure, and concealment after it foreclosed on his shopping center following his default on loans he took out to purchase the shopping center.  After defeating plaintiff’s claims through demurrer and summary judgment, Wells Fargo successfully moved for $133,176.15 in attorney fees and costs. 

            On appeal, plaintiff argued that because he did not bring his action to enforce the deeds of trust or to unwind the foreclosure, and based on the fee-shifting provisions in the parties’ agreements which did not allow recovery of fees incurred after the foreclosure, nor for fees relating to tort claims, Wells Fargo was not entitled to fees.

            The Third District disagreed – finding the fee-shifting provisions in the parties’ master agreement and deeds of trust supported the trial court’s post-judgment order on fees.  The master agreement provided that a defaulting party would pay to Wells Fargo “all reasonable out-of-pocket expenses, including legal fees . . . , incurred by such other party by reason of the enforcement and protection of its rights under this Agreement . . . .”   The deeds of trust provided for fees at the trial and appellate levels for claims “in any way affecting any of the Subject Property or [Wells Fargo’s] ability to exercise any of its rights or remedies with respect thereto.”  Wells Fargo had successfully defended plaintiff’s wrongful foreclosure claims and its defense was “founded on the protection of its rights to repayment of interest and principal for the loans it made to [plaintiff] before he defaulted on payment.” Additionally, the panel found the fees provisions in the parties’ loan documents did not restrict fees only to contract causes of action and were broadly worded so as to encompass both contract and tort causes of action.

Fee Clause Interpretation, Landlord/Tenant: $93,913.85 Fee Award In Favor Of Residential Defendant Affirmed On Appeal

Conversion Claim Arose From The Lease, With Other Arguments Forfeited On Appeal.

            Where appellants fail to make arguments at the trial court level or in an appellant’s opening brief, they may be subject to having their challenges forfeited on appeal.  That largely happened in Ghannoum v. Sevier, Case No. B304026 (2d Dist., Div. 2 Apr. 7, 2021) (unpublished).

            Defendant tenant defensed a non-signatory residential property owner’s lawsuit based on damaging property in the premises after defendant was evicted.  The trial court awarded defendant $93,913.85 out of a requested $116,527.10 based on a lease attorney’s fees clause. 

            That result was affirmed on appeal.  Many of the arguments on appeal were dismissed because they were not raised at the trial court level or raised in appellants’ opening brief.  With respect to the gist of the claim, a conversion based on a contract can give rise to fee recovery, Mustachio v. Great Western Bank, 48 Cal.App.4^th 1145, 1151 (1996), which it did as far as triggering fee entitlement in this particular case.

Fee Clause Interpretation, Section 1717: $795,728 Fee Award To Litigant Affirmed On Appeal Based On Broad Stock Purchase Agreement Fees Clause, But $926,170 Fee Request Properly Denied As Untimely As Well As Not Allowed Under Promissory Notes Fees Clause

In The End, This Dispute Was Driven By The Fee Clauses “Four Corner” Interpretation.

            Justice Fybel, as the authoring justice in Dohr v. Lintz, Case Nos. G056144/G058796 (4^th Dist., Div. 3 Mar. 24, 2021) (unpublished), was faced with consolidated appeals where a $795,728 fee award was trying to be sustained and where a $926,170 fee request was denied as untimely and not allowable under a promissory note fees clause.  In the end, all was affirmed but he (on behalf of his panel) steered through some interesting fee analytics.

            Litigant Dohr obtained a $795,728 fee award out of a requested $2,208,512.50.  The other side appealed, principally arguing it was a tort claim not recoverable under Civil Code section 1717 and was a derivative claim which at the most capped at the $50,000 bond limitation set forth in Corporations Code section 800.  The appellate court rejected the challenges to the fee award.  Although agreeing that tort claims are not recoverable under Civil Code section 1717, the fee clause under the stock purchase agreement, had to be independently assessed, and it was broad enough to allow fee recovery.  The aggrieved party Lintz argued that she could not be held liable on a derivative claim, but she—as a shareholder of the corporation—stood in its shoes such that she became a party to the stock purchase agreement and the $50,000 limitation did not apply in the context of this case where there were other fee entitlement bases.

            With respect to the denial of the $926,170 fee request, it was untimely, there was a dismissal of the note claim effectively (such that Santisas kicked in), and the tort allegations were not tethered to the note fees clause.  All things said, there was nothing wrong in denying this fee request. 

Fee Clause Interpretation, Section 1717, Unlicensed Contractor: Section 1717 Fees Of $231,834 To Defendant Prevailing Against Statutory Claims Affirmed “Because Of” Broad Fee Provision In Parties’ Contract

Parties’ Fee Provision Encompassed Tort and Statutory Causes Of Action Commenced “Because Of” An Alleged Breach Of Contract.

            In San Francisco CDC LLC v. Webcor Construction L.P., Case Nos. A156669/A157650 (1^st Dist., Div. 1 March 19, 2001) (published), plaintiff paid defendants approximately $144 million for the construction of a hotel in San Francisco.  Eight years after defendants’ completion of the hotel and plaintiff’s final payment, plaintiff sued defendants under Bus. & Prof. Code § 7031(b) for disgorgement – alleging defendants were not properly licensed during construction and had concealed licensing violations through a series of mergers.  However, finding plaintiff’s claims had accrued at the time of final payment and were time-barred under a one-year statute of limitations (Code Civ. Proc. § 340(a)), the trial court sustained defendants’ demurrer to plaintiff’s third amended complaint without leave to amend – a result affirmed on appeal by the 1/1 DCA.

            After defeating plaintiff’s claims on demurrer, defendants successfully moved for $231,834 in Civil Code § 1717 attorney fees.  On appeal, plaintiff challenged the fees award by arguing that the trial court erred in its interpretation of the attorney fee provision in the parties’ construction agreement.  Plaintiff asserted that the fee provision excluded noncontract claims such as an action for statutory disgorgement – that fees were available only in an action for breach of contract.  The appellate panel concluded otherwise.

            The fee provision in the parties’ contract stated fees were recoverable “[i]f either party commences an action against the other to enforce any of the terms of the Contract Documents or because of the breach by either party of any of the terms of the Contract Documents . . .”  As the “because of” language in the provision did not include a limiting qualifier such as “solely” or “exclusively because of,”  the appellate panel concluded that it permitted the recovery of fees if the action was at least in part due to an alleged breach of contract – including an action brought “because of” a breach of contract without being an action for breach of contract. 

            Although plaintiff sued to assert a statutory disgorgement claim, the trial court’s conclusion that plaintiff’s action was at least in part “because of” an alleged breach of contract was fully supported by the record.  Plaintiff’s pleadings repeatedly claimed defendants breached their contractual obligations to be licensed, and plaintiff also argued before the trial court that its disgorgement claim arose out of a contractual obligation.

Arbitration, Fee Clause Interpretation, Reasonableness Of Fees, Section 1717: $1,237,501 Million Fee Award For Arbitration, Creditors Action, And Related Proceedings Affirmed On Appeal

Broad Fee Clauses Were The Bases For The Affirmed Award.

            In Currency Corp. v. Wertheim, LLC, Case No. B276506 (2d Dist., Div. 1 Mar. 2, 2021) (unpublished), Wertheim initiated legal proceedings spanning 15 years, culminating in an arbitration in which it achieved nothing (according to the DCA panel) because part of the award was found to be illegal and branched into other lawsuits and appeals.  In the end, Currency and its affiliates sought fees for the arbitration portion of the dispute and related proceedings, with the trial court granting fees of $1,237,501 against Wertheim.

            That award was affirmed on appeal.  The principal reasons were the DCA’s perception that all of the proceedings were “bundled together” and sprang from the arbitration, as well as the broad nature of some contractual fees clauses.  Given this ruling, it counsels practitioners and litigants to narrowly draft fees clauses, given that a broadly worded fees clause can give rise to fees incurred in an arbitration and related proceedings. 

            Also, be careful when you sue parties as alter egos.  Even if the case is patently untenable, Civil Code section 1717 does allow for fee-shifting in these situations—something which did occur here even though the theory was that an individual was an alter ego of an individual (an impossible construct).

            As far as reasonableness of the fees, Wertheim could not surmount the deferential abuse of discretion standard even though there was evidence in the record that the fee substantiation was incompetent in nature.

Fee Clause Interpretation, Section 1717: In San Diego Real Estate Investment Dispute, One Fee Award Of $227,734.32 Reversed While Another Fee Award Of $75,262.50 Affirmed

Whether Fee Clause Was “On The Contract” Or Fell Within The Fee Clause Language Determined The Results In This Case.

            In the attorney’s fees area in California state courts where contractual fee clauses are at issue, key issues are whether a prevailing party actually prevailed “on a contract” for fee entitlement under Civil Code section 1717 or whether a particular successful result on a contract claim fell within the governing language of the fees clause.  Chhatrala Investments, LLC v. Elajou Investment Group, L.P., Case No. D074840 (4^th Dist., Div. 1 Jan. 21, 2021) (unpublished) confronted such issues, which were key in reaching the end results.

            There, plaintiff real estate investors sued to recoup $1.79 million in funds for the sale of a San Diego commercial parcel properly known as the Waterfall Property.  They brought various contractual, tort, common count, and equitable claims against various defendants.  The defendants obtained wins through an eventual demurrer of a third amended complaint which was sustained without leave, a merits ruling affirmed on appeal.  Later, defendant Zephyr obtained $227,734.32 in contractual attorney’s fees, and remaining defendants were awarded $75,262.50 in fees as against the losing plaintiffs.

            The $75,262.50 fee award held up on appeal.  Plaintiffs’ claims were based on breach of a promissory note (based on a fees clause) and foreclosure of the underlying security; as such, the “enforce this Note” language was broad enough to provide fee entitlement.  It did not matter that plaintiff was a nonsignatory on the note because plaintiff claimed entitlement to enforce the note—seeking the benefits of the note gave rise to fee exposure.

            A different result occurred with respect to the $227,734.32 fee award obtained by Zephyr.  That one was reversed because Zephyr only prevailed on tort-based and common count claims, ones which were not “on the contract” under section 1717 (an essential component of recovery under this statute).  Zephyr’s main fallback was that it prevailed on affirmative defenses involving the contract so as to provide entitlement, but this argument was dispatched by the Mountain Air decision to the contrary [our Leading Case #22] and by the wording of the fees clause which only applied to “commenced” litigation rather than affirmative defenses. 

Fee Clause Interpretation, Section 1717: Attorney Fees Awarded To Prevailing Plaintiff On Its Tort Cause Of Action Reversed On Appeal

The Fees Clause In The Parties’ Contract Covered Only Contract Claims And Plaintiff’s Tort Claim Was Not Inextricably Intertwined With Its Dismissed Contract Claim.

            In WindAirWest v. Castle & Cooke, Case Nos. B295513 and B299043 (2d Dist., Div. 3 January 8, 2021) (unpublished), plaintiff, an operator of a private jet charter company, entered into a sublease agreement with defendant, a fixed-base operator that leases airport space and provides aircraft services to aviation companies that sublease parts of defendant’s space.  The parties’ agreement gave plaintiff access to defendant’s facilities at Van Nuys airport, including ramp and hangar space as well as an office.

            Less than a month into the sublease, one of defendant’s employees moved plaintiff’s Citation X aircraft in order to access another aircraft, but parked the Citation X on a downhill slope without putting wheel chocks in place to prevent accidental movement, and the Citation X rolled down the slope and crashed into another aircraft – causing serious damage to the Citation X.

            Plaintiff sued defendant asserting negligence and breach of contract causes of action, but dropped the breach of contract claim through its first amended complaint filed about a year-and-a-half into the litigation – leaving only the tort negligence claim for which it sought $4,235,935 in lost profits.  Defendant admitted liability – which left the only determination at trial to be whether defendant’s conduct caused plaintiff to lose profits and, if so, how much.  The jury returned a verdict in plaintiff’s favor, awarding it $2,464,560 in lost profits.  Additionally, the trial court awarded plaintiff its attorney fees as the prevailing party.

            Defendant raised several challenges on appeal, but we focus on the attorney fees award.  Plaintiff moved for fees, pursuant to Code Civ. Proc. §§ 1021, 1032, and 1033.5, based on the attorney fees provision in the parties’ agreement.  The trial court concluded the provision was broadly enough worded to encompass tort claims, but the 2/3 DCA disagreed and reversed as to the fees.  Although attorney fees are recoverable costs under §§ 1021 and 1032 if authorized by contract, the appellate panel – interpreting the parties’ fees clause under the ordinary rules of contract interpretation – found the mutual intent of the parties was clear that the prevailing party would be entitled to fees for a claim brought “to enforce any provision of this Sublease.”  Because plaintiff’s action did not enforce a provision of the sublease agreement, it was not entitled to fees under the fees provision.  Additionally, because plaintiff did not contend its tort claims were inextricably intertwined with its dismissed contract claim, its reliance on Lockton v. O’Rourke, 184 Cal.App.4th 1051 (2010) was misplaced and to no avail.

Fee Clause Interpretation: $1,487,990.30 Attorney’s Fees Award Based On Settlement Agreement Contractual Fees Clause Affirmed In Favor Of Prevailing Mobile Home Plaintiffs

Appellate Court Rejected Election Of Remedies Argument Where Plaintiffs Prevailed On Both Contract And Tort Claims With Overlapping, Yet Different, Facts.

            Mobile home park/related property management defendants had reached an earlier settlement with two mobile home residents, with the settlement agreement having a contractual fees clause for a breach limited to contract claims.  Subsequently, the mobile home residents became plaintiffs, suing the prior settling defendants for breach of the settlement agreement as well as tort claims when the residents’ mobile homes were removed from the park without their knowledge or consent.  The jury was not pleased with this conduct, awarding one resident $477,000 in compensatory damages, the other resident $468,000 in compensatory damages, and $4 million in punitive damages to each.  Later, the plaintiffs moved to recover $1,790,984 in attorney’s fees, with the lower court awarding them $1,487,990.30 after eliminating fee work on non-contract claims.

            Defendants, in Belanger v. Biggs, Case Nos. B296853/B297614 (2d Dist., Div. 3 Dec. 24, 2020) (unpublished), appealed both the merits and fees award.  Except for reversal of a fraudulent conveyance count based on lack of harm, the compensatory/punitive verdicts and fee award were affirmed in entirety.

            The defense argued that the fee award was precluded based on election of remedies, contending that plaintiffs had to choose between emotional distress/punitive damages recourse or contractually based relief.  The appellate court disagreed.  The problem here is that the tort claims, while involving some overlapping facts with the contract claims, did involve independent and different facts such that no election needed to be made because the claims were not inconsistent. 

Consumer Statutes, Fee Clause Interpretation, Settlement: $65,000 Attorney’s Fees Award And $7,987.40 Costs Award Under Lemon Law Settlement Stipulation Are Affirmed On Appeal

Lower Court Properly Harmonized Seemingly Conflicting Terms Of Settlement Stipulation.

            In Boykin v. Premier Universal, Inc., Case No. F078689 (5^th Dist. Dec. 17, 2020) (unpublished), the parties settled a lemon law case, but reserved the issue of recovery of attorney’s fees for a subsequent motion.  The problem was that the settlement stipulation had conflicting terms: (1) “fees and costs are to be resolved by motion to the Court;” and (2) “there will be no prevailing party status and no admission of liability.”  The defense seized on (2), in opposing a fees/costs motion, to boldly contend that plaintiff stipulated that there would be no prevailing party such that fee entitlement did not lie.  The lower court harmonized the two settlement provisions and determined fees/costs were justified to the tune of $65,000 in fees and $7,087.40 in costs.  The Fifth District affirmed, because the (1) settlement stipulation would be rendered meaningless, and the trial judge deciding the issue was the one presiding over the settlement colloquy such that any reasonable inferences on stipulation construction was guided by the substantial evidence rule.  (Winograd v. American Broadcasting Co., 68 Cal.App.4^th 624, 627, 632-633 (1998).)

Fee Clause Interpretation, Landlord-Tenant: Landlord Winning Malicious Prosecution Suit Against Former Tenants Was Properly Denied Contractual Fee Recovery

Narrow Breadth Of The Lease Fee Shifting Provision Sealed The Result.

            The 2/2 DCA in Vaughn v. Darwish, Case Nos. B296693/B305132 (2d Dist., Div. 2 Nov. 12, 2020) (unpublished), did express introductory exasperation about the length of the landlord/tenants’ dispute – going back to 2010, which generated 8 lawsuits, 8 appeals, and 5 writ proceedings.  (When an appellate court starts out this way, it is signaling that the time is drawing near to end the dispute.)  Landlord prevailed in a malicious prosecution action brought in response to an earlier unlawful detainer action by certain tenants, but landlord was denied contractual attorney’s fees—prompting landlord to appeal.

            The fee denial was affirmed.  The reason was that the scope of the fee clause was narrow, applying to these six categories:  recovery of moneys due under the lease; breach of lease covenants; recovery of possession for the leased premises; compelling performance of lease obligations; recovery of damages to the lease property; and enjoining acts contrary to the lease obligations.  A malicious prosecution action did not fall within the ambit of these six categories, such that the denial was correct.  “What is more, the fact that the unlawful detainer actions were the singularity from which this universe of litigation has exploded does not render all subsequent litigation subject to the attorney fees clauses in the leases when that litigation is outside the plain language of those clauses.”  (Slip Op., at p. 29.)

Fee Clause Interpretation, Deadlines: Broker Award Of $150,000 In Prevailing Contractual Fees Affirmed On Appeal

Good Cause Was Shown For Allowing Fee Motion To Be Considered After Deadline, With Broad Fees Clause Encompassing Contractual Duties Even If Statutory Duties Were Not Encompassed.

            Price v. Gullan, Case No. D075332 (4^th Dist., Div. 1 Oct. 21, 2020) (unpublished) was a very contentious case involving a defective yacht purchase dispute where the purchaser ultimately won damages/fees against yacht sellers but failed to obtain any relief against the dual broker in the transaction.  Broker then moved for costs and attorney’s fees of $440,198.45, with real storms arising on whether the fees motion was timely filed based on the judgment “trigger point” and on whether there was legitimate fee entitlement.  The lower court did award the requested routine costs and $150,000 in attorney’s fees to broker.

            Purchaser’s appeal of the fees award in favor of broker was unsuccessful.

            Although the legal discussion was somewhat convoluted, the time to appeal was triggered from the original judgment given that it only allowed costs but did adjudge the fee entitlement issue.  However, the deadline to file the fees motion can be extended for good cause—and that standard was met given a lot of confusion on the procedural history of what occurred.  The appellate court, here, did have a nice discussion on how trial courts have inherent power to grant a costs and/or fees request that does not strictly comply with statutory requirements.  With respect to the merits, the broad “arising out of or relating to this Agreement” language did encompass broker’s actions as a matter of contract, setting aside whether the conduct violated statutory actions outside the scope of the fees contract.  So, in the end, broker’s fees award was affirmed on appeal.